2018 (6) TMI 1643 - AT - Income Tax

Rectification u/s 254 - capital gain computation - cost of acquisition in case of succession of the firm to the company - HELD THAT - Section 49(1)(iii)(e) was introduced by the Finance Act, 2012 with effect from 1.4.1999. The said section, in our view, is only clarificatory in nature and has specifically provided the cost of acquisition in case of succession of firm to the company. However, the said cost of acquisition was already in existence under section 49(1)(iii)(a). Therefore, in our view no fresh charge has been created on account of succession of a firm to the company. It has only clarified the existing basis of calculating the cost of acquisition in case of succession of the firm to the company. We find that the above findings of the Coordinate Bench have been rendered in the context of the provisions of section 49(1)(iii)(a) and not section 49(1)(iii)(e) as amended by the Finance Act, 2012 where clause (xiii) of section 47 was inserted w.r.e.f 1.4.1999. Further, the contentions of the assessee have also been understood in context of transfer as per clause (xiii) of section 47 as evident from the finding that the assessee, in our view, has wrongly got confused with the principles laid down under section 47 which talks about the transaction which are not regarded as transfer, with that of principles for determining of cost of acquisition under section 49 instead of corresponding clause relating to cost of acquisition relating to transfer as contemplated under section 47(xiii) as introduced in section 49(1)(iii)(e) However, if we look at the first two grounds of appeal, these grounds of appeal were raised by the assessee specifically in the context of section 49(1)(iii)(e) as amended by the Finance Act, 2012 which were brought on the statute subsequent to passing of the assessment order u/s 143(3) of the Act and which were invoked by the ld CIT(A). In these grounds of appeal, the assessee has challenged the findings of the ld CIT(A) in holding that amendment to section 49(1)(iii)(e) inserting clause (xiii) of section 47 was clarificatory in nature. The said findings of the ld CIT(A), as we have noted above, were rendered in the context of amendment being retrospective and hence clarificatory in nature. However, the way the same has been apparently understood by the Coordinate Bench was that the provisions governing cost of acquisition in case of succession, inheritance are already in existence under section 49(1)(iii)(a), the subsequent amendment in section 49(1)(iii)(e), wherein corresponding provisions governing cost of acquisition in case of a transfer as defined in section 47(xiii) were provided by the Finance Act, 2012, was clarificatory in nature. We further note that contentions of the assessee regarding non-levy of interest u/s 234B due to retrospective amendment, though noted by the Coordinate Bench, has apparently missed its attention and the ground of appeal has been dismissed holding it as consequential in nature in view of deletion of ground relating to cost of acquisition.

Summary

Issues Involved:
1. Erroneous interpretation of Section 49(1)(iii)(e).
2. Misinterpretation of findings by CIT(A).
3. Incorrect understanding of liability for interest under Section 234B.
4. Overlooking the principle that special law overrides general law.
5. Ignoring the principle that actions should be judged based on the law at the time they were taken.

Detailed Analysis:

1. Erroneous interpretation of Section 49(1)(iii)(e):
The assessee argued that the Coordinate Bench erroneously recorded that "Section 49(1)(iii)(e) was introduced by the Finance Act, 2012 with effect from 1.4.1999." The Bench's conclusion was based on the incorrect assumption that this provision was newly introduced in 2012, whereas it had existed since the Income Tax Act's inception in 1962, with various amendments over time. The assessee contended that the Coordinate Bench's misunderstanding led to a flawed decision, as the correct interpretation should have acknowledged the retrospective effect of the 2012 amendment.

2. Misinterpretation of findings by CIT(A):
The assessee highlighted that the Coordinate Bench disturbed the undisputed finding by CIT(A) that the cost of the property for determining capital gains should be worked out as per Section 49(1)(iii)(e). The Bench erroneously applied Section 49(1)(iii)(a) dealing with succession, inheritance, or devolution, which was not the specific provision relevant to the case. This misapplication resulted in an adverse decision for the assessee, contrary to the CIT(A)'s findings.

3. Incorrect understanding of liability for interest under Section 234B:
The assessee contested the Coordinate Bench's decision on Ground No. 3, where it denied any liability for interest under Section 234B. The Bench misunderstood this ground as a general dispute against the levy of interest, rather than recognizing the specific argument that no advance tax payment liability existed during the relevant period. The assessee argued that the retrospective amendment could not be anticipated, and thus, the liability for interest was incorrectly upheld.

4. Overlooking the principle that special law overrides general law:
The assessee argued that the Coordinate Bench failed to consider that Section 49(1)(iii)(e) is a special provision that overrides the general provision of Section 49(1)(a). The principle that special law takes precedence over general law was not addressed, leading to an erroneous application of the general provision instead of the specific provision relevant to the case.

5. Ignoring the principle that actions should be judged based on the law at the time they were taken:
The assessee contended that the Coordinate Bench overlooked the principle that the validity of an action should be judged based on the law and material available at the time the action was taken. Subsequent amendments or clarifications should not be used to justify or validate an action that was not in accordance with the law when it was initially taken. This principle was supported by various judicial precedents cited by the assessee, which the Bench failed to consider.

Conclusion:
The ITAT Jaipur reviewed the rival contentions and the material on record. It found that the Coordinate Bench's decision was based on a misinterpretation of the relevant provisions and principles. The Bench's findings were rendered in the context of Section 49(1)(iii)(a) instead of Section 49(1)(iii)(e) as amended by the Finance Act, 2012. The contentions regarding the non-levy of interest under Section 234B due to retrospective amendment were also overlooked. Consequently, the ITAT decided to recall the entire order passed by the Coordinate Bench and directed the Registry to fix the matter for a fresh hearing, acknowledging the need to rectify the apparent, glaring, and patent mistakes of law.